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Unit 11: Profit and Loss Prior to Incorporation




          10.  Gross  profit  must  be apportioned  between  prior  to  incorporation  period  and  post-  Notes
               incorporation period in the Ratio of Turnover.
          11.  Directors’ fees are apportioned on time basis to pre-incorporation and post-incorporation
               period.
          12.  Statutory meeting of a public limited company is held only once in the life of the company.
          13.  Statutory report must be signed and certified by at least two directors of the company.

          Illustration 6
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          Dehra Udyog Ltd. incorporated on 1  May, 2010 received the Certificate to Commence the
          Business on 31  May 2010. It had acquired a running business from M/s. Vohra & Co. with effect
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          from 1  January, 2010. The purchase consideration was   2,500,000 of which   500,000 was to be
          paid in cash and   2,000,000 in form of fully paid shares. The company also issued shares for
            2,000,000 for cash. Machinery costing   12,50,000 was then installed. The assets acquired from
          the vendor were:
          Machinery   15,00,000, Stock   300,000, Patents   2,00,000.
          During the year 2010 the total sale was   90,00,000. The sale per months in the first half year was
          one half of what was in the later half year. The net profit of the company after charging the
          following expenses was   5,00,000.
          Depreciation   2,70,000. Audit fees   37,500 Directors’ fees   1,25,000, Preliminary Exps.   30,000,
          Office Expenses   1,95,000, Selling Expenses   1,80,000. Interest to vendor upto 31  May 2010
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          12,500. Ascertain the pre-incorporation and post-incorporation amount of profits and prepare
          the Balance Sheet as on 31  December, 2010. Closing stock was valued at   3,50,000
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          Solution:
          1.   Calculation of Goodwill



               Machinery                      15,00,000
               Stock                           3,00,000
               Patents                         2,00,000
                                              20,00,000

               Less: Purchase Price           25,00,000
               Goodwill                        5,00,000
          2.   Calculation of Gross Profit:
               Net Profit (given)              5,00,000

               Add: Expenses –
               Depreciation                    2,70,000
               Audit Fees                       37,500
               Directors’ Fees                 1,25,000

               Preliminary Expenses.            30,000
               Office Expenses                 1,95,000
               Selling Expenses                1,80,000




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